Is A Private Retirement Plan Good for Asset Protection in California?

Having worked hard to accumulate assets and achieve a comfortable standard of living, the last thing you want to worry about is the risk of losing it all and starting over again as you approach retirement.

People each other, often.  Not only in California, but throughout the US.  In California, the damages awarded in personal injury cases are considerably higher than the national average. Currently, California sits at number 1 on the American Tort Reform Foundation’s Judicial Hellholeslist for abuses in the civil justice system – primarily against defendants.

California has some limitations on the types and amounts of assets that can be available to satisfy outstanding debts, but the protections built into the system leave a lot of assets vulnerable to creditor reach – including some federal retirement accounts.

However, there is a tool that has stood the test of time under California law, one that has proven effective at protecting assets set aside for retirement. The Private Retirement Plan (PRP) has been around for more than 50 years.  Assets in the plan and distributions from the plan are completely exempt from creditor claims.

At the Law Offices of Andrew Cohen, we understand that we are living in times of great uncertainty. Our Santa Clarita asset protection attorney works with clients to design comprehensive plans for asset protection and wealth preservation.

What Asset Protection is Designed to Accomplish

Asset protection is the process of using legal strategies and tools to safeguard assets from being depleted by the claims of creditors. The idea is that someone should not be rendered destitute because of their debt.

The law exempts certain minimum amounts from satisfying creditor claims and there are additional tools that can be used to further protect otherwise available assets. The PRP is one of the most effective ways to protect assets for retirement.

How Do Private Retirement Plans Work?

The California Code of Civil Procedure (CCP) makes exempt from the enforcement of money judgments

all amounts held, controlled, or in process of distribution from a private retirement plan, …’

Over the years, the California courts have determined what is necessary for a private retirement plan to be recognized as valid. Because all of the plan’s assets will be exempt, it must be evident that the primary purpose for setting up the plan was to provide for retirement.

Factors that will be used to decide if a private retirement plan has a legitimate purpose include:

  • The intentions of the person setting up the plan
  • The timing of creating the plan in relation to other circumstances
  • The degree of control the person setting up the plan maintains over the assets in the plan
  • How well specific rules and procedures are followed
  • What distributions from the plan are used for

Advantages of Setting up a Private Retirement Plan

Private retirement plans are not tax-advantaged plans and therefore do not have to adhere to the same formal rules that federal retirement plans do. In addition to being exempt from creditors’ claims, a private retirement plan offers these advantages:

  • Can be set up by a business owner without requiring employee participation
  • Can be administered to provide certain tax advantages to encourage wealth preservation
  • There are no funding or contribution limits or restrictions
  • Business transactions within the plan are not prohibited
  • No distribution penalties or taxes
  • Distributed property remains exempt from creditors

Find Out Whether a Private Retirement Plan Can Protect Your Assets

Private retirement plans can be a key component for preserving and accumulating wealth for retirement. But in order to be recognized as legitimate retirement planning vehicles, there are certain formal requirements that must be in place and observed to make sure PRP assets remain exempt from creditor access.

In Santa Clarita, trust and estate planning attorney Andrew Cohen dedicates his practice to helping clients protect what they have to the fullest extent of the law so that their wealth provides for them through retirement and then passes to their heirs according to their wishes. Call the Law Offices of Andrew Cohen at 661-481-0100 to schedule a free consultation or contact us via our website.

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